Brazil to ease a tax increase charged on imported cars

To hasten investments in Brazil, its government will ease by this March a tax increase imposed on imported cars for automakers investing to construct local assembly plants. Mauro Borges Lemos, head of the Brazilian Industrial Development Agency (the government's chief industrial policy maker), said that the surcharge of up to 30% was implemented last month, despite protests from Chinese automakers, to stop the onslaught of imported cars being sold in Brazil, the biggest economy in Latin America. The agency hasn’t finalized yet the details of how the roll back will be applied.

Among the companies that benefit from this change are Anhui Jianghuai Automobile Group from China and BMW. These two companies have revealed intentions to make investments in Brazil. Lemos told Brasilia last Thursday that this tax had been used as an emergency brake so it will now be lowered. He said that this move is treated as an “incentive” to hasten investments and is considered part of a wider effort to raise the competitiveness of Brazil's manufacturers, which lost share in a strong consumer market as a 35% rally in the real since the end of 2008 decreases the cost of imports, specifically from China.

Last year, auto imports have gone up by 30%, making up about 23.6% of vehicles licensed compared with 18.8% in 2010. BMW and Anhui Jianghuai Automobile Group have yet to comment. Towards the later part of the year, the government will reveal plans to reduce the so-called IPI tax over the upcoming four years, starting in 2013, offering bigger breaks for vehicles that comply with higher fuel efficiency and safety standards and having a larger share of parts made locally. Lemos added that as its technology is “below world standards," they’re aiming for “modernization." [source: Bloomberg]